Wholesale Food Prices Post Biggest Drop in 17 Years

Mild weather resulted in the largest one-month drop in wholesale food prices in 17 years, the government reported Friday, pushing prices lower at the supermarket for vegetables, pork and beef.

Economists said that retail prices of those commodities should continue to decline or at least remain flat through the spring if good weather continues as expected. Fruit prices, driven higher by the citrus freeze in December, are also expected to fall in coming months.

The Labor Department said wholesale food prices in February fell 1.4%, the largest monthly drop since July 1982. The slide in food prices, combined with a 1% decline in energy costs, pushed February’s producer price index, a closely watched barometer of inflation, down a seasonally adjusted 0.4%. The drop, the largest in 13 months, reversed an unusually large, 0.5% jump in producer prices in January.

Prices excluding the volatile food and energy sectors were unchanged after edging down 0.1% in January.

Behind the drop in food prices was a 23.4% plunge in wholesale vegetable prices that economists attributed to unusually large crops that resulted from an unusually mild winter. The price of pork fell 6.3% in February and beef and veal prices slid 2.4%, the government said.

Economists said beef and pork sales typically decline in February, as demand for meat falls off at the start of the Lenten season. Nonetheless, the sharp drop in wholesale food prices is unwelcome news for the already depressed farm economy.

Prices paid to hog farmers have plunged to record lows, and lawmakers from pork-producing states have said that business is in a recession.

“We lost 15,000 [farms] in 1997, and I wouldn’t be surprised to lose between 10% and 20% this year,” said Steve Meyer, economist for the National Pork Producers Council in Des Moines.

Likewise, farmers in California--the nation’s salad bowl--suffered huge weather-related losses in 1998 from El Nino’s heavy rains. Citrus farmers were hard hit by December’s freeze.

Prices of dairy products fell 3% on increased supply after rising 3.4% a month earlier. And the price California farmers are paid for milk is taking a record drop next month.

The overall decline in wholesale food prices followed a 1.6% increase in January that resulted from a cold snap that slowed vegetable and fruit harvests and devastated the citrus crop.

And in February, fruit prices continued to rise, registering a 2.6% gain. The price of Granny Smith apples rose 19.5% and strawberry prices jumped 13%, the government said.

But fruit prices are expected to come down this spring as warm-weather crops begin to appear.

“Right now the weather suggests there’s going to be a very large crop,” said Vernon Crowder, an agricultural economist at Bank of America in San Francisco.

“We’ve had very favorable weather leading to strong supplies of every [food] product you can imagine,” said economist Gary Lucier of the U.S. Department of Agriculture’s Economic Research Service. “I think it’s safe to say retail prices will be at or below year-ago levels.”

Other components of the producer price index were mixed. Car prices fell 0.3%, though prices for light trucks rose 0.4%. Computer prices declined 1.4%. Prescription drug prices, however, increased 0.8% and have risen 20.6% during the last year.

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Cheaper Food

Monthly percentage change in wholesale food prices:

February: -1.4%

Source: Labor Department